Over the last several months, NPR and ProPublica have been investigating the Red Cross. The Red Cross is one of the most important disaster relief organizations in terms of size, services, reputation, and fund raising capacity, so the investigation’s findings are quite disturbing. I think the investigation is best summed up by the following statistic:

Here are 5 lessons we can learn from the information being revealed that will help us make better donations in the future.

1. Fundraising For Fundraising’s Sake

The Problem: NPR reports that when the Haiti earthquake hit, the Red Cross “out-raised other charities by hundreds of millions of dollars — and kept raising money well after it had enough for its emergency relief.”

The Takeaway: Disasters are excellent fundraising opportunities, and often the charity with the best marketing strategy gets the most money. Obviously, the ability to raise money has nothing to do with their ability to use that money. During our next disaster donation, we will look at how much the disaster will likely cost to address, how much money the organization can reasonably spend, and compare that to how much they’ve already raised or anticipate raising.

2. Incorrectly Represented Expenses

The Problem: Nonprofits are under a lot of public pressure to spend their money appropriately. That’s a good thing. Unfortunately, the public doesn’t often understand the complexity of charitable work, and as a result, they simplify this value of “spend our donations appropriately” to the question, “How much of my money goes to directly to helping people?” As a result, the metric many people in the public use to evaluate a charity revolves around how much is spent on the programs vs. how much is spent on salaries and marketing. You may have heard this referred to as “Overhead Ratios” or “Admin Ratios”. The Red Cross felt this pressure and communicated often and without the possibility of misinterpretation that “Ninety-one cents of every dollar that’s donated goes to our services.”

This is patently untrue and easily debunked. A quick review of their financial records shows that they spent 26% of their funds on fundraising.

Part of the problem is that the Red Cross is a complicated organization. Their primary focus is actually on selling blood. You donate it, but they sell it. They earn $2 billion a year through these services. In a future blog post, I’ll look at the economics and ethics behind the “we donate blood, they sell it model”, but right now, the important thing to know is that they are a large organization with many expensive programs and many significant streams of revenue. However, their financial documents do not break down income and expenses by each program. Outside parties cannot possibly identify what went where, which makes it very easy for the Red Cross to present the story that makes them looks the best.

The Takeaway 1: I’ve written about how the focus on admin ratios distracts us from what’s really important. A donation to a charity with 0 expenses and 100% going to the program can be 100% wasted, because the charity does not have the technology, training, etc. to direct their donations efficiently. We will continue to focus on the results the program is having while checking that their expenses appear reasonable considering the work they are doing.
The Takeaway 2: In addition, I will look to see how the charity is representing their expenses to the general public. If it appears to be misleading, I will note this in the new “Red Flags” section of our report (I’ll talk more about this new field at the end).

The Takeaway 3: I will continue reviewing the financial documents, but add a more thorough look at what their financial documents say they are doing compared to what their annual reports say they’re doing.

3. Excessive Focus on Public Image

The Problem: NPR’s investigation reveals internal documents and reports from former employees that empty food trucks were instructed to drive around neighborhoods to give the appearance of their presence and activity in a community, extra meals were prepared to boost reporting numbers even though that food would go to waste, delivery trucks were scheduled to appear as back drops at news conferences.

The Takeaway: The Red Cross clearly understands that we are a media and appearance driven society, and they took great care to project an image of accomplishment and professionalism. It is very hard to fight this kind of concerted facade, but I will redouble the “Reputation Research” portion of my report and include phrases such as “former employee” and “complaints”. If you have any suggestions for uncovering blog posts, blog comments, rants, and other material that might reveal problems within a charity, please let me know. I’d love to add them to my process.

4. Numbers That Don’t Make Sense

The Problem: Like many charities, the Red Cross is under pressure to produce results, but the Red Cross moved into very gray area when it claimed it provided homes for more than 130,000 Haitians. To be very clear, they built 6 homes. 6. Under pressure, the Red Cross admitted that the 130,000 figure is made up of “people who went to a seminar on how to fix their own homes, people who received temporary rental assistance, and thousands of people who received temporary shelters — which start to disintegrate after three to five years.”

The Takeaway: When looking at the numbers that charities report, we will take extra care to evaluate if the numbers make sense. Does the number include the results of smaller programs? We’ll ask more in-depth questions like, “What exactly is meant by ‘provided homes’. Similar to the reputation problem above, a concerted effort to misrepresent their results may be difficult to discover.

5. Not In Their Field Of Expertise

The Problem: Like I mentioned earlier, The Red Cross is one of the most important disaster relief organizations in the world. They provide emergency shelter and food to people who have been displaced by disasters. Yet, their plan with all the money they raised for Haiti involved building houses. Did they know what it took to get building permits and projects approved in Haiti? No. Did they hire locals to navigate land rights and community objections? No. In fact, their staffers (working in Haiti with allowances for housing, food and other expenses, home leave trips, R&R four times a year, and relocation expenses which could total up to a $140,0000 per year) repeatedly missed meetings, because without being able to speak the language, there was nothing they could do anyway. Could they adapt their plan to what they met on the ground? No. In some cases, they provided training on how to wash one’s hands with water and soap to people who had neither water nor soap.

As they began to run into trouble, they started to give money to other groups to do the hands-on work. But this is expensive. The Red Cross took an administrative cut to transfer the funds and set aside additional funds to monitor those projects. According to NPR, these costs ate up to a third of the donations that were supposed to go help Haitians.

The Takeaway: We want to donate to charities who are doing what they know how to do. If we want to accomplish something outside of their expertise, we are better off finding a different charity.

The Takeaway Takeaway.

What we do here at Change Gangs: Virtual Giving Circles is more important than ever. We donate because we care. Our hearts tell us to help, but we must care enough to use our heads. We may not be able to avoid bad donation, but our due diligence goes a long away to making sure that we make a difference with our hard earned donation dollars.

Our reports will include a new field called “Red Flags” where I will notate any discrepancies in their financial documents, misrepresentation of their work to the public, and articles reflecting problems with the charity’s ability to do their work in the field. The “Red Flags” may or may not be a problem. We can’t always know. But enough red flags or the right red flags may give us reason to pause and direct our donation to a different charity.

You Can, Too

Every three months, Change Gangs: Virtual Giving Circles donates our pooled donations to charities. We love that we each give only $25, but together we donate THOUSANDS!

And we’re not content to donate, cross our fingers, and hope our donation makes a difference. Nope, these charities have been thoroughly researched and the members receive the full reports. Are these charities efficient? Are they making a difference? These are the answers we want to know before we send our hard earned dollars. We use our brains and our hearts.

Below you’ll find a brief description of the charities we are considering. If you join now, you can help us choose the charity!

People for Pets

We’re deciding between

Companion Animal Advocates whose primary mission is pet retention, and they keep pets out of shelters by providing pet food to food banks so that those who are struggling to feed their families can feed their pets, too.

Kindness Ranch who provides a sanctuary and place of rehabilitation for animals who have previously been used in laboratory research.

Lucky Dog Animal Rescue who helps unwanted dogs find forever homes and is a leader in Colorado Springs in educating the public on the importance of spaying and neutering, advocating for animals that have no voice, offering training and other resources as alternatives to re-homing, and preventing cruealty to animals.

Poverty Busters

We’re deciding between
Care International whose mission is to end poverty by focusing on women’s education, rights, health, and economic opportunities.

Hephziba Children’s Association helps children thrive and families flourish through innovative, community-based programs. For example, one of their programs is a Diagnostic Treatment Center which provides abused and neglected children a 90-day period of stabilization and evaluation. It is the only diagnostic shelter for children between the ages of 3 and 12 in Illinois.
Liya Kebede Foundation who focuses on training, community education and safe birth service delivery priorities.

My Favorite Part

Last week, I was honored to have a mention in an article at the Stanford Social Innovation Review. In this article, The Disruption for Good, the author looks at how “rapid advances in technology are changing philanthropy in fundamental ways—making it potentially more rational, effective, collaborative, transparent, and democratic.” We are mentioned as one of those leveraging technology to create communities of people joined by a common cause. We are a disruption for good! But you already knew that didn’t you?

Let’s set aside how cool it is to be mentioned in an article in this prestigious publication (and it is really, really cool!). I’m especially honored because the author, Laura Arrillaga-Andreessen, has been fundamental to my own development as a philanthropist.

I picked up her book Giving 2.0 as I was starting to work on our giving circles. I appreciated this book immediately for its thoughtful approach to philanthropy. Often times in this type of genre, there are prescriptions for the right way to give and the right kind of charities to support. But from the beginning, she asked questions and proposed scenarios designed to get the reader to think deeply about what they have to give, the kind of causes they want to support, and how to choose charities.

As she wisely notes, “Online ratings systems are a starting point rather than a comprehensive solution to philanthropic due diligence”, and as I developed our own strategy for due diligence, her insights guided me. The “Charting A Course” chapter, lists 50 questions to ask a nonprofit before making a donation. These questions along with her “Warning Signs” raised my awareness of the intricacies of evaluating and choosing the non-profits that meet our own goals.

This book is packed with useful information. In fact, it might have too much information, so when she put together an online course, I eagerly signed up. I was not disappointed. The format of the course allowed her to organize the material in Giving 2.0 into lessons that greatly expanded their content and usefulness. Plus, she introduced a new framework for engaging philanthropy called Reflect, Assess, Decide, Act, Reflect. (R.A.D.A.R.).

The common thread throughout her book and her online course is her emphasis that philanthropy is a deeply personal effort that evolves as the giver becomes more experienced and more connected with what their giving means for them. Mistakes will be made. Lessons will be learned. Priorities will change. Fortunately for us, she shares her own lessons and processes in the hope that we can start our own philanthropic journeys a little more thoughtfully and a lot more effectively.

‘Twas the night before Christmas, when I said to my spouse,
“We’ve done too much again, just look at this house.

But we haven’t done enough this year to care
for those for whom Santa Clause will not be there.

Our children are nestled all snug in their beds,
But what of those kids with no roofs o’er their heads?

Charity requests are stacked high on our desk.
And the thought of them there is causing me stress.

There’s Heifer and Good Will and Green Peace and Red Cross
Or Kiva or St. Jude or Smile Train or Livestrong?

There’s too many choices, there’s too little time.
There’s now way to know the best use of our dime!”

My spouse drew me close and whispered to me,
“Of course, there is dear, but not under the tree.

The answer exists in an e-book online
And will answer your questions as it answered mine.

The Holiday Giving Survival Guide

Relax! Holiday giving just got easier. Find out…

* What to do instead of donating canned food!
* How to do better clothes and toy drives!
* How to create a Family Giving Plan!

Plus, discover

* A 4 Level Charity Evaluation System you can use to quickly and confidently evaluate ANY charity.
* How to build your own donation team!
* Why you should ignore overhead ratios when evaluating a charity!

Click on the image or use this link to get your very own copy of the Holiday Giving Survival Guide!

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About Sharon

Throughout my life, I have donated to help animals, the environment, the homeless, the poor, the Food Bank, the Red Cross and more. You name it, and I’ve probably sent them money. Like many others in today’s economy, the few dollars I had left at the end of the month for philanthropy weren’t making a significant difference for the causes I cared most about– until I discovered the power of giving circles.

I'm dedicated to helping people make a big impact on the causes they care about most.

Quote

“Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it’s the only thing that ever has.” Margaret Mead

Another Quote

Past the seeker as he prayed came the crippled and the beggar and the beaten. And seeing them… he cried, “Great God, how is it that a loving creator can see such things and yet do nothing about them?” God said, “I did do something. I made you.” Sufi Teaching

Yet Another Quote

“What we think or what we know or what we believe is, in the end, of little consequence. The only consequence is what we do.” John Ruskin